Covid impact: Bank credit growth slows to 5.6 per cent in March 2021, says RBI data

Reserve Bank of India (RBI) has decided to transfer a surplus of Rs 99,122 crore the central government for the nine months ended July 2020 - March 2021.

Banks' credit growth slowed to 5.6 per cent year-on-year (y-o-y) basis in March 2021 compared with 6.4 per cent a year ago reflecting the tough market conditions due to the impact of the Covid pandemic on the ground, according to data released by the Reserve Bank of India (RBI).

Within banks, public sector and private sector banks recorded 3.6 per cent and 9.1 per cent credit growth, respectively, whereas lending by foreign banks declined during 2020-21.

Credit delivery suffered in FY21 due to the outbreak of the Covid-19 pandemic. This is because banks turned more risk-averse, tightening credit filters and focusing only on quality borrowers.

In its annual report for 2020-21, the RBI said that the slowdown in banks’ credit growth during the year has been broad-based across all major sectors, except agriculture. According to data on the sectoral deployment of bank credit for March 2021, credit growth to agriculture and allied activities accelerated to 12.3 per cent in March 2021 from 4.2 per cent a year ago, the highest since April 2017.

Industry worst hit

Credit growth to industry decelerated marginally to 0.4 per cent from 0.7 per cent a year ago, mainly due to credit to large industries, which contracted by 0.8 per cent in March 2021 .

“This is primarily on account of large industries obtaining financial resources from non-bank sources, while the silver lining has been provided by the robust performance of credit to medium industries which registered a growth of 28.8 per cent in March 2021 (as compared to contraction of 0.7 per cent a year ago), reflecting the positive effects of various measures taken by the Government of India and the Reserve Bank for the micro, small and medium enterprises (MSME) sector,” the central bank said in the annual report. Credit growth to MSMEs grew last year due to the emergency credit line guarantee scheme announced by the government.

Going forward, the RBI expects an improvement in the credit flow backed by liquidity availability, lower interest rates, government measures and commencement of the mass vaccination drive.

The combined credit by bank branches in the top six centres -- Greater Mumbai, Delhi, Bengaluru, Chennai, Hyderabad and Kolkata, which together accounted for over 46 per cent of total bank credit -- declined marginally during 2020-21.

On the other hand, bank branches in urban, semi-urban and rural areas recorded 9.4 per cent, 14.3 per cent and 14.5 per cent credit growth, respectively, during the year. FY21 was a relatively better year for rural credit growth than for lending in urban areas as interior regions was less affected by the spread of the pandemic, the RBI said.

Aggregate deposit growth rose to 12.3 per cent y-o-y in March 2021 from 9.5 per cent a year ago, the RBI said. Metropolitan branches, which account for over half of total deposits, recorded a nearly 15 per cent growth during 2020-21. Within overall deposits, the share of current account and savings account deposits in total deposits rose to 44.1 per cent in March 2021 from 42.1 per cent a year ago. Lower growth in credit vis-à-vis deposits led to decline in the all-India credit-deposit ratio to 71.5 per cent in March 2021 from 76 per cent a year ago, the RBI data showed.